Mrs Merkel failed to form a coalition government with the liberal Free Democrats and the Greens, after the FDP pulled out of talks.

The delay in forming a new coalition – the biggest crisis of Mrs Merkel’s career – has worried some European Union allies, who see Germany as a pillar of stability in the bloc.

Germany’s Spiegel newspaper has billed it as a fight for Mrs Merkel’s political survival.

What is being discussed?

In the campaign, the (SPD) favoured more spending on education and infrastructure, changes in health insurance, and no cap on the number asylum seekers.

Speaking on Wednesday, Mr Schulz said: “I cannot tell you what the outcome of these talks will be. I can ensure you only this: that I’ll campaign for the best solution for our country, that my party is aware of its overall responsibility for political stability.”

Meanwhile, Mrs Merkel said Germany needed to keep growth-friendly investment and budget consolidation policies. She may also want to pursue a tougher migrant policy to win back conservative voters.

What could happen?

The SPD could join Mrs Merkel in a coalition

Mrs Merkel could form a minority government with the Greens with SPD support. But the chancellor previously said she preferred new elections to an unstable minority government

President Steinmeier could call a new election, but experts say the chances of this happening are remote after the SPD agreed to talk. Polls suggest a new vote would produce a result similar to September’s election. There is also the fear that the far-right Alternative for Germany (AfD) could benefit the most